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Five Tips for Raising Start-Up Capital

January 03, 2003|Josh Friedman

Gene Wang, an entrepreneur for the last 20 years and former teacher of a Stanford University class called "The Art and Science of Raising Money," has five tips for people seeking start-up business financing:

* Profile the potential investors. Know which stage of investment they specialize in: "seed," early, middle or late. Learn about their risk tolerance and personalities. "Are they an old gentleman or part of the 'Sand Hill mafia'?" Wang said, referring to venture capital sharpies nicknamed for Silicon Valley's Sand Hill Road. Contact companies already in the investors' portfolios to get a reading on the investors' style, Wang suggested.

* Strike a balance between quantity and quality. Don't use a "shotgun" approach, such as calling 100 venture capitalists. But don't limit your options drastically by calling only a few. "A dozen good ones is about right," Wang said. "You have to romance the right people. You have to be able to look deeply into their eyes and tell them how much you love them, and how much they love you."

* Leverage your contacts through networking. Get to know each venture capitalist well enough to know whom he or she trusts -- "then you can 'triangulate' on the investor by getting the other person to reinforce their belief in you," Wang said. Some contacts may offer a delayed payoff, which makes fund-raising a "lifetime job," he added. Wang met John Malloy of Nokia Venture Partners -- the initial venture capital investor in Wang's current company, Bitfone Corp. -- while pitching him on his last company, PhotoAccess Corp. Malloy turned him down, but "we hit it off anyway," Wang said.

* Set up a "race." "Time is on the investor's side. The longer they wait, the more is known about the possible success or failure of the enterprise," Wang said. "For investors, the only incentive to rush is the fear of missing the next big thing." But it's important to introduce the notion of competition with subtlety, he advised, so as not to offend people.

* Never give up. Fewer than 1% of start-ups get venture funding, Wang said, so the odds can be as daunting as those faced by screenwriters or actors. "It's going to take a lot of 'nos' before you get to a 'yes,' " he said.

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